Budget rolls out post-pandemic spending plan
Prime Minister Justin Trudeau’s government on Monday lined up billions in new spending to provide emergency support during a virulent third wave of the COVID-19 pandemic and to help launch an economic recovery ahead of an election expected later this year.
The federal budget, the Liberal government’s first in two years, aims to boost near-term growth and includes a long-promised national daycare plan.
It also follows through on stimulus promised late last year, outlining a $101.4-billion “growth plan” over three years, with nearly half of that spending coming in the first year.
“There are a lot of announcements today that will make a lot of different stakeholders happy,” said Trevin Stratton, chief economist for the Canadian Chamber of Commerce, adding the budget “will provide a lot of certainty.”
But he also cautioned that the business community is “of the opinion that we didn’t need short-term stimulus in this current situation because there is so much pent-up demand.”
Finance Minister Chrystia Freeland defended the spending, saying hundreds of thousands of Canadians remain out of work because of the pandemic.
“We have to finish the fight against COVID, and that costs a lot of money,” she told reporters.
The deficit for the fiscal year that started on April 1 will be the second largest in recent decades, with the closely watched debt-to-gdp ratio hitting 51.2 per cent, although Freeland promised a return to restraint as the economy gets back to normal.
The Liberal government has been buoyed in the polls by its response to the COVID-19 pandemic, and Liberal insiders expect Trudeau to seek an election later this year to try to secure a majority in Parliament. The Liberals currently need the support of at least one other party to pass legislation, including the budget.
But a third wave of coronavirus infections is pounding populous Toronto and its suburbs — a key Ontario region for securing a majority — and the vaccine rollout has trailed other wealthy countries such as the United States and Britain.
Of the nearly $50 billion in new spending this year, $27 billion is set aside to extend pandemic recovery measures such as wage and rent subsidies for businesses and for a new program to help transition companies back to hiring.
The budget also aims to create a national childcare program and to make a more aggressive effort to reduce carbon emissions, both measures that opinion polls show are important to Liberal voters.
DEBT AND ANCHORS
While Freeland said historically low interest rates allowed significant government spending, she also pledged to decrease deficits and reduce the debt-to-gdp ratio over the medium term.
A senior government official said, however, that a fiscal anchor should not be seen as a restrictive “straitjacket.”
The official said the government had run stress tests on the accumulating debt and is confident it can service that debt even as interest rates rise in the future.
“It’s hard for us to draw a conclusion that we’re out over our skis. We don’t believe we are. We think we’re in very solid terrain,” the official told reporters.
Surging growth should also increase revenues, with 5.8 per cent growth forecast for this year, after a 5.4 per cent contraction in 2020.
The deficit in the current year is projected to hit $154.7 billion, less than half the previous fiscal year, with total national debt rising to $1.23 trillion this year, up from $1.08 trillion in the previous year.